Catholic Church leaders were warned that pedophile priest Xavier Ortiz-Dietz exhibited "marked sexual conflicts" and "well-defined paranoid characteristics" in 1974 - two decades before he went to prison for sexually assaulting altar boys, court records show.

Archbishop Patrick Flores, then an auxiliary bishop, played a key role in persuading Ortiz-Dietz to leave Mexico and attend seminary in San Antonio, according to records from a lawsuit the priest's victims filed against the Archdiocese of San Antonio.

Flores announced June 4 that the archdiocese will settle the lawsuit by paying $4 million to the families of seven boys Ortiz-Dietz sexually abused while a priest in several nearby parishes.

In a letter read Sunday at all Masses, Flores told parishioners: "We wish we had known in time to prevent this tragedy."

But according to testimony gathered for the case, many signs of trouble were ignored.

Lois Heath, a former church secretary, said Ortiz-Dietz told her in 1987 that he felt a need to touch boys in sexually inappropriate ways. She reported him to church leaders, but there was no apparent response.

"When I heard the archbishop's letter read at Mass last Sunday at Our Lady of Perpetual Help in Selma, I stood up and said he lied when he said he wished he'd known sooner, and I walked out," she said.

"He couldn't just give a straightforward apology to those kids; he's been covering up this case," she said.

Tom Drought, the archdiocese's lawyer, discounted Heath's story and a similar claim by Grace Palacio of Rocksprings.

Palacio said Ortiz-Dietz gave her and her husband bizarre, inappropriate sexual advice when they sought marital counseling in 1983. She told Flores about this directly, she said.

"We contest the claims of both of those witnesses," Drought said.

Flores was in Houston Friday attending a funeral and was unavailable for comment.

Drought added that "Bishop Flores never saw the letter from the institute in Guadalajara about the personality profile until his deposition in this case."

The letter from church school officials in Guadalajara, Mexico, spoke of Ortiz-Dietz's "marked sexual conflicts."

But Michele Petty, a lawyer for the families who sued, said archdiocesan leaders, including Flores, "definitely knew based on the testimony of Lois Heath and there is evidence they knew or should have known (of problems) since the beginning.

"The people who tried to report him basically ran up against a brick wall," she said. "The information was either not acted upon or was turned over to (Ortiz- Dietz)."

The archdiocese did not move against Ortiz-Dietz until August 1992 when an Atascosa County family accused him of sexually abusing several children. By the end of the month, the priest had been removed from his parish and sent for psychological evaluation.

Ortiz-Dietz, who was pastor in Yoakum, Von Ormy, MacDona, Rocksprings and Leakey, pleaded no contest to charges of sexual assault and indecency in 1994. He is serving a 20-year prison sentence.

Even as he began his pursuit of the priesthood, questions arose about Ortiz-Dietz's suitability for the priesthood.

In a final report of his work in 1972-73 at a school in Guadalajara, he was described as having "marked sexual conflicts, hypocrisy ... obsessive manias, well-defined paranoid characteristics, delusions of grandeur, vanity and narcissism."

The report also stated: "Generally speaking, the priests (who) know him view him as a bizarre individual and have a very bad feeling about him."

Ortiz-Dietz struck up a correspondence with Flores shortly after leaving the school.

The future archbishop urged him to get into contact with officials at Assumption Seminary in San Antonio.

The only hitch was that Ortiz- Dietz was not providing all of the necessary papers and letters of recommendation to Father Jose Lopez, the archdiocese's director of vocations.

In June 1975, Flores wrote Ortiz- Dietz that "the documents Father Lopez is requesting are requested of everyone. ... Obtain what you can and don't worry about the rest. Even if you were to receive a negative evaluation (from) the Bishop of Oaxaca, his recommendation will not be treated as an invalidating document."

Two months later, the bishop of Oaxaca wrote the seminary, sending a copy of the Guadalajara letter.

Yet Ortiz-Dietz was fully accepted into the seminary.

Drought said the letter was a blemish on an otherwise excellent resume.

"Ortiz-Dietz had very high recommendations from everyone in Mexico except for this one person. We don't know who the letter writer was, but he didn't have any kind of psychiatrist's or psychologist's expertise," Drought said.

Flores "didn't have anything to do with Dietz's getting into the seminary," the archdiocese's attorney said.

Lopez, who accepted Ortiz-Dietz for the seminary, put little emphasis on the negative letter because of the many positive recommendations and the perception that negative letters often came from Mexican sources, Drought said.

Petty said there was no excuse for the archdiocese not to know of Ortiz-Dietz's behavior sooner and remove him from his parish.

"There was not a good system to report a priest and in the communities he was in he had vast power and vast respect," she said.